What does a direct exchange rate specify?

A direct exchange rate specifies the value of a foreign currency in terms of the domestic currency, which, in the context of U.S. dollars, means it indicates how much of the domestic currency is equivalent to one unit of the foreign currency. Thus, the correct interpretation aligns with the answer that specifies the value of the currency in U.S. dollars.

In a direct exchange rate format, you can see how much U.S. dollars are required to obtain a specific unit of the foreign currency. For example, if the direct exchange rate is quoted as 1 Euro = 1.10 USD, that means one Euro is valued at 1.10 U.S. dollars. This formulation allows for straightforward conversions and helps traders, investors, and individuals understand how much domestic currency they would need to make purchases or exchanges in foreign markets.

The other choices relate to concepts such as currency demand and interest rates, which do not specifically define the direct exchange rate but rather address different aspects of currency and finance.